AIMA-Member

Mortgage Jargon in Simple Terms

Taking out a mortgage is sometimes complicated, especially if we don’t know all the terms and phrases professionals use. Thus, here is a quick guide on the most common mortgage jargon. If you’re looking for answers to common mortgage questions, please visit our General First Time Buyer Mortgage FAQs section.

A

APRC

The abbreviation APRC represents the Annual Percentage Rate of Charge, a percentage that shows how much the mortgage would cost you on a yearly basis. It takes into account both the interest and all other fees and expenses you may have, for example, a valuation fee. In addition, it’s also useful when comparing different mortgage providers.

Arrears

If you fall behind on your mortgage payments, you are “in arrears”.

B

Base Rate

The base rate is often followed by standard variable and tracker rates. It’s an interest rate that the ECB (European Central Bank) establishes.

Breakage Cost

The breakage cost is also known as ERC or Early Redemption Charge, and it’s a fee that’s charged when some holders of certain types of mortgages (fixed rate mortgage, for example) pay back the loan early. Most of the time, it can vary on a case-to-case basis, so it’s necessary to check the Terms and Conditions of the mortgage or the approval letter to find out the amount.

Broker

In order to stay on the safe side when taking out a mortgage, borrowers should hire brokers. These are independent advisers who can guide you through financial matters and mortgages.

C

Capital & Interest Payment

It’s a monthly payment that covers not just the capital but the interest too. Once you make it, it lowers the total balance outstanding.

Cost of Credit

Cost of credit includes both the interest and other mortgage charges. It’s essentially the difference between the money you have borrowed and the amount you’ll repay.

D

Deeds

These are legally binding agreements in which the borrower relinquishes his or her ownership rights in favour of the lender if they don’t repay the loan. The property is essentially the collateral when taking out a mortgage, and this document provides the lender with enough security to approve the loan.

Deposit

The lender borrows an amount of money to you, but you will have to pay the deposit yourself. The amount you’ll have to pay depends on the lender’s requirements, as well as the property itself.

E

Early Redemption Charge (ERC)

This term is related to different types of mortgages such as the fixed rate variation, that charge a fee if you place early repayments on the loan before the terms are due. It always changes from a deal to deal, so it’s a good idea to check the original terms as well as the conditions of the loan to see how it works.

Equity

Equity is the difference that is set between the outstanding amount of your mortgage and the current value of your property.

F

Fixed Rate

A mortgage where the rates remain the same during a specific period on the duration of the loan, regardless of changing base rates.

Freeholder

A term used about someone who owns the land and the buildings (if any) placed on it from the moment the property was established. You won’t be dealing with periods of years regarding the ownership, and there will be no ground rent to pay.

G

Gazumping

The term is used to illustrate a situation where a buyer establishes an oral intention to purchase a property by a price that has already been accepted by the seller, but the latter backdowns from the deal before the sale is fulfilled because he is in the position to take a better offer from another buyer. It can also be referred to the increase of the initial asking price by the seller at the last moment, after previously orally agreeing to a lower one.

Guarantor

It’s a word used to address a third party that accepts to cover the monthly mortgage repayment if the original contractor can’t pay for it for any reason. The resource is commonly applied to first-time buyers, with the guarantor being one of the parents.

I

Interest Only Mortgage

An interest-only mortgage is a financial instrument where your monthly payments of the mortgage are used to cover for only the interest fees without including the original debt amount. This means that the payments will be easier to handle than on an average repayment mortgage, but at the end of the loan you will still owe the original sum that was borrowed from the lender.

J

Joint Applicants or Joint Mortgages

This type of deal is set when two persons are willing to share property ownership rights at even levels. If can be configured with any number of partners representing both ends of the ownership. People applying for joint mortgages, get their incomes and assets revised and catalogued on single figures. If one of the two parts involved on the deal dies, the sole ownership of the property goes back to the surviving person in the partnership.

L

Land Registry

The official body that holds the details of property and land ownership.

Leasehold

You own the property where you live, but not the land it is built on for several years. Flats arrangements are usually handled using leaseholds. It also makes properties harder to a mortgage if they have less than 70 years left on the lease terms. These leases are renegotiable, but the remaining terms could make them very expensive in the long run.

LTV (Loan to Value)

This means the size of your mortgage as a percentage of the overall value of your property.

For instance, if you have €100,000 mortgage and your home is worth €200,000, your LTV is 50%.

M

Maturity Date

Is the date set for the mortgage to be repaid completely? If the contractor can’t fulfill it, he can negotiate a new payment agreement.

Monthly Repayments

Is how it’s called the amount you have to pay to the lender to cover the mortgage debt every month.

Mortgage Offer

It’s how you call a guaranteed offer pending approval. If the deal goes through, you get a formal offer stating the terms and conditions to pay back the loan.

Mortgage Terms

Is the time you are repaying the mortgage over; for example, 25 years.

N

Negative Equity

It’s a market effect that takes place when the value of your house drops below the amount of your mortgage.

O

Overpayments

It’s what you do when you pay additional money over or above the monthly quota of the mortgage. You can negotiate a one-off lump sum payment, or you can choose to pay an extra amount every month to lower the interest rates and settle the overall debt quicker.

P

Portability

A financial tool used to transfer an existing mortgage debt to another property, when you move to a new house.

Payment Holiday

A period of time during which there are no mortgage payments made. It can only be used on flexible mortgages, and the terms of use need to be detailed on the contract. Most of the time you will be charged interest just the same.

R

Rebuilding Costs

Is the sum of money that would cost to rebuild your house if it was affected by a disaster, such as fire or any other hazards? The figure is mostly needed for insurance purposes.

Remortgage

A term used to refer the transference of a mortgage from one lender to another.

S

Stamp Duty

It’s the name of a tax that has to be paid when a property is bought.

Standard Variable Rates (SVR)

An SVR is the default mortgage interest rate that will be charged by the lender once the original mortgage deal is over.

Service Fees

It’s a sum of money charged by a lender who, with the customer’s written consent, asks for details from their existing mortgage lender.

T

Tracker Rate Mortgage

It’s a term used to refer to a mortgage interest rate that is set on fixed percentages above the base rates set by the European Central Bank (ECB). This means that the interest rates of the mortgage will change according to the metrics stated by the European Central Bank base rate.

V

Valuation

It’s something required by mortgage lenders as prove of the real value of the property you want to buy, to see if it’s worth the amount you want to borrow.

Variable Rates

This means that the interest rate of your mortgage can vary (up or down) if the lender chooses to change the standard variable rate.